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Saturday, August 10, 2013

Of Bitcoin and Empire

Maybe I am a bit slow on the uptake, but I am just now noticing how the US government reaction, especially in the courts, to Bitcoin is similar to the British discovering that they stopped running the world after WWII.

Of course, everybody but the British knew they were not running the world anymore long before they did. At the end of WWI they had the roughest, toughest military in all of history and they dismantled it to the point that the could barely defend their own little home island cluster by the time Hitler came a callin'.

What does this have to do with the peaceful, utopian world of the Bitcoin? Everything actually. The United States held a prestigious place in the world of money for quite some time. This prestige was built in a laissez-faire manner, to great extent. Our central bank came and went, the shining jewel in Andy Jackson's crown was its abolishment.

This arrangement went on until a central bank was reestablished, designed in part to prevent great depressions, it came on line just in time to create a worldwide depression. How did the US central bank manage to do this? By hijacking the good name of the US Dollar, and misusing the gold standard:

Note to the goldbugs out there: In the video, Dr. Friedman gives a very concise and informative lecture on how the gold standard was used. For some reason, my government gold standard friends can mention returning to the gold standard in the same breath as they use it as an example to prevent financial calamity.

Then World War II came along, Stalin won and let the West keep some of their own stuff. The communists were already operating on a purely fiat currency, they didn't have a real price system to help with rational decision making. Of course, the brightest Economists in the West loved this system and placed in charge of dismantling any vestiges of free market economies folks like Henry Dexter White:

Harry Dexter White was the architect of the post-war financial system, which paved the way for the West to dominate the 20th century and win the Cold War.

But it has now emerged that the brilliant economist was in fact a staunch anti-capitalist who privately praised the Soviet Union's communism.

Something funny about that article is the shock and amazement by the Daily Mail writers "discovering" this fact in early 2013 when it was known for decades. Actually they mention this in their article while continuing to be amazed.

So, what is going on now? A peaceful public uprising and the US government is amazed that they are not running the world anymore in the realm of currency. What is really amazing is that they act surprised. Surprised that they have reduced what is supposed to be a stable, easy facilitator of exchange (money in general, the dollar in specific) to worthlessness and people created something else as a substitute.

The bureaucracy jumped into the game first, from what I can tell, with the courts, which lead to a Homeland Security seizure of accounts. The courts are still leading the way too, one court just ruled that Bitcoin is "money" in the sense that it is something that can be regulated by various tentacles of the US government. This strikes me as a the actors in the current government reacting like the post-WWII British, wishing to cling to a prestige that no longer exists.

What is the whole purpose of the Bitcoin anyway? I'll spare you the faculty lounge claptrap and skip to the short answer. Bitcoin is a facilitator of exchange, and nothing more. Just like any fiat currency in some aspects. However, the Bitcoin makers established controls to prevent inflation (actual inflation of over creation of money, not relative price appreciation of individual goods).

One important feature of the Bitcoin, that is a desired feature in coined or printed money, is forgery prevention. The stuff is as impossible to forge as you can get, from what I understand. More difficult to forge than government money.

So now we have a real competitor for the US dollar and the US is pissed. The only thing the competitors had to do was make a currency that doesn't suck, and from all appearances, they did.